Shatzkin doesn’t share Howey’s gloomy outlook that publishing is doomed, but he does call out some of the same trends and counterproductive behaviors that Howey noticed. He touches on the way adult coloring books are one of the big things keeping publishers’ bottom lines from plummetting all the way (which he did point out several months ago). He also notes that agency pricing is not an inconsiderable part of the problem.

The issue Shatzkin sees is that Amazon doesn’t need agency publishers’ ebooks to be cheap in order to offer bargains to its shoppers; it has tens of thousands of its own, and of other publishers who don’t price via agency. But instead of bringing their prices back down in order to compete, publishers seem intent on pushing them even higher than Apple would allow them to during the early agency days. Meanwhile, since Amazon no longer has any ability or need to slash agency publishers’ ebook prices, it’s able to slash their print book prices instead, undercutting the publishers’ attempts to push more business to brick-and-mortar stores and making the agency ebook prices look all the more ridiculous at the same time.

Not only is this slashing publishers’ revenue, it’s also hindering the creation of new break-out hits—those things that Howey noted publishers like to blame their revenue downturn on the lack of—because it’s a lot harder to get people to try new authors or books when the prices are sky-high, even if a friend previously read and recommended them.

And this brings Shatzkin to the crux of the matter:

This puts publishers in a very painful box. When they cut their ebook prices, they not only reduce sales revenue for each ebook they sell; they also hobble print sales. (Although if they cut prices as a promotion, and they market the promotion, apparently higher-priced print will also benefit from the promotion and see a resulting sales lift.) And singling out some of their ebooks for an ebook price reduction strategy could also raise a red flag with an agent. It is easy to understand a temporary price reduction that is promoted; as an overall pricing strategy it could be seen as a bite out of the author’s ebook earnings at the same time their print sale is threatened with the low-price ebook competition. And while an ebook price-reduction strategy would probably make at least Amazon and Apple, very important trading partners, quite happy, it risks angering others, including perhaps Barnes & Noble but certainly including all the indie bookstores.

On the other hand, the current “strategy” has plenty of risk.

I’m puzzled by Shatzkin’s apparent complete disregard for the price-demand curve. It seems like basic economics that a drop in price will lead to enough additional sales to bring in more total revenue overall, because publishers are pricing their ebooks way above their equilibrium price. So why should it matter that they reduce revenue for each ebook? They’d more than make it up in volume. And if it harms publishers’ print sales, well, so what? They’d still be making more money overall. Maybe they should print fewer print books; it’s not as if they’re not wasting plenty of paper and gas already.

In any event, Shatzkin suggests that publishers return to a time-honored technique of publishing books with a slightly lower price for their initial couple of months of release, then raising it later. He notes that this used to be the standard practice for marketing hardcovers, in order to drive larger advance sales at the lower cover price. He thinks doing something similar for ebooks might help to drive early sales and word-of-mouth, even if it might hurt the hardcover sales at the same time.

Shatzkin goes on to note that ebooks have no physical cover on which a publisher-set price must be printed. So they have the innate ability to be more flexible in pricing than print books—whether that price is to be raised or lowered. Indeed, discount sale operators like BookBub already take advantage of this.

So, Shatzkin concludes, decoupling ebook price from print book price might help publishers better understand the dynamics of ebook pricing versus sales—something that critics have been complaining that publishers don’t understand compared to retailers. But since retailers don’t care about individual titles the way a publisher would, there’s no reason to suppose retailers’ understanding is necessarily valid from a publisher’s point of view.

Who ever thought they would see Mike Shatzkin, a publishing-industry veteran and the son of another publishing-industry veteran, advocate for an end to sky-high publisher ebook pricing? Or at least a partial end—dropping the price for launch, then raising it back to the “normal” level a couple of months later. He’s still being more than a little timid, presumably so as not to scare publishers away entirely—but at the core of his suggestion, if you dig down that far, is the recognition that publisher ebook sales are in the toilet, and independently-published works are eating their lunch. Just as indy-pub boosters predicted, and have been subsequently been watching happen.

It’s just possible that this might well be the start of a wider publisher recognition that their strategy isn’t working, and they need to readjust. I’ve previously noted that publishers have screwed up their treatment of ebooks ever since the late 1990s, but that was largely a matter of inattention. Thanks to Amazon, now they’re paying full attention—and while their first impulse was to do exactly the wrong thing, the publishers’ executives didn’t get to be in charge of their companies by being complete fools. Surely they’ll come to some degree of their senses sooner or later.

If you want to keep your horse from dying (and then everyone else coming out with clubs to beat it), you don’t ride it all the way into the ground. Likewise, if you want to keep your company (and your executive position at the head of it) viable, you don’t let it go under. The only question is whether the publishers will come to a new pricing epiphany while they still have any slice of the market left.

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Published by Chris Meadows

TeleRead Editor and Senior Writer Chris Meadows has been writing for TeleRead--except for a brief interruption--since 2006. Son of two librarians, he has worked on a third-party help line for Best Buy and holds degrees in computer science and communications. He clearly personifies TeleRead's motto: "For geeks who love books--and book-lovers who love gadgets." Chris lives in Indianapolis and is active in the gamer community.
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Quote: “Meanwhile, since Amazon no longer has any ability or need to slash agency publishers’ ebook prices, it’s able to slash their print book prices instead, undercutting the publishers’ attempts to push more business to brick-and-mortar stores and making the agency ebook prices look all the more ridiculous at the same time.”

Shatzkin regards that as bad? I see it as a lesser evil.

Assuming that Amazon’s slashing of print book prices means it loses money on each sale, Amazon in paying a lot in its attempt to crush physical bookstores. A lower price is only one factor in consumer purchases of print books. Local bookstores can compete in other ways, including availability and convenience. Amazon could easily be spending $100 for each $20 in local bookstore sales it steals. Remember, a lot of readers are so addicted to Amazon, they would be buying from it, discount or not. Amazon gains nothing by heavily discounting for them. It loses money for nothing.

That’s not true with ebooks. The convenience of a quick download is the same for all retailers. Amazon’s ebook price-cutting was intended to crush Apple, B&N, Kobo and the like, so it could utterly own the ebook market. There each ebook sale it acquired by price cutting meant a lost sale for Amazon’s ebook competitors. Local bookstore competition was almost irrelevant.

Shatzkin is making a crucial mistake. Lower ebook prices primarily advantage Amazon, which dominates that market. Executives at the major publishers are not fools. They know that the wider the ebook to print pricing gap, the more book sales in general will move to Amazon, giving it the muscle to strong-arm publishers. That’s why they want to keep that gap small.

I can understand why many believe that ebooks should sell for substantially less than their print counterparts, given their various economies. But that’s only one factor in the equation and, in the current Amazon-dominated market, not even the most important one.
——-
Also, I grow tired of people who blame publishers for high ebook prices and fail to blame Amazon for establishing the market conditions that keep those prices high. I particularly fault them for not taking the time to note how Amazon’s self-serving royalty scheme grossly distorts ebook pricing.

Consider an ebook with a limited appeal, either because the audience is limited or because it’s a textbook. Suppose that fixed market means it needs to be priced at $20 to simply break even, perhaps because it is a nursing textbook for a speciality. With Apple’s 70% royalty rate, a $29 price will earn sufficient return to recoup the investment, any higher price means profit. With Amazon’s 35% royalty rate for ebooks priced over $9.99, that book MUST SELL for over $57 simply to recoup that investment.

Note especially what is happening. Selling through Amazon, the publisher gets a mere, break-even $20, while Amazon pockets $37 for doing no work, taking no risk, making no investment, and merely providing a credit card transaction and file download that costs it pennies. That is sick. That is vile. That is evil. And that’s precisely why textbook and bestseller ebook prices remain high. I isn’t the publisher. It is Amazon.

Until I hear pundits, including Mike Shatzkin, talk about that quite considerable factor in ebook pricing, I see no reason to take what they say seriously. They’ve not looked at the market dynamics or taken the time to do a little simple math.

At the heart of this problem is Amazon demand for ‘no cheaper price elsewhere.’ It refuses to allow a publisher to price a textbook on the iBookstore for $29 and the same textbook on Amazon for $57, even though the publisher’s income on each is the same. That too is evil. That too should come to an end.

Why don’t pundits talk about this? All it takes is sixth-grade math to see the distortions that Amazon is introducing into ebook pricing. As best I can tell, it’s because they’re part of a group of people whose eyes glaze over when they hear math. To them, a math proof, no matter how simple and obvious, carries no weight. They’re rather bash executives at the major publisher who, I suspect, are very, very good at doing the math.

–Michael W. Perry

One additional remark. Amazon’s royalties also only pay 35% below $2.99. That creates enormous pressures on authors and publisher to raise the price of an ebook that they might be willing to sell for $0.99 (to attract readers) to $2.99. That’s Amazon forcing a 300% increase in the retail price and again, I don’t hear these publishing pundits criticizing that either.

I have seen some cases of publishers testing low ebook prices of retirement books, ones that compete with my “How to Retire Happy, Wild, and Free” and “The Joy of Not Working.” I have maintained the price of my two retirement books at $9.97 and refuse to lower the price because that would cheapen what I have to offer. Judging from the relative Amazon sales rankings of the respective books, the sales of the other publishers’ retirement books have not increased significantly, if at all.

Again, these words of wisdom apply:

“Trading in your standards in order to gain short-term attention or profit isn’t as easy as it looks. Once-great media brands that now traffic in cheesecake and quick clicks didn’t get there by mistake. Respected brands that rushed to deliver low price at all costs had to figure out which corners to cut, and fooled themselves into thinking they could get away with it forever. As the bottom gets more and more crowded, it’s harder than ever to be more short-sighted than everyone else. If you’re going to need to work that hard at it, might as well put the effort into racing to the top instead.”
— Seth Godin